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April 19, 2011

NVCA Reports Modest Gains in First Quarter Venture Funding

Last week, the National Venture Capital Association (NVCA), a trade association representing the U.S. venture capital industry, released the results of its MoneyTree Report on venture funding for the first quarter of 2011. The NVCA quarterly study, which the group conducts with PriceWaterhouseCoopers using data from Thomson Reuters, indicates that venture capitalists invested $5.9 billion in 736 deals during the first quarter, which constituted a 5% increase in dollars and a 11% drop in deals as compared with the fourth quarter of 2010 when $5.6 billion was invested in 827 deals. While the 736 deals represented the lowest number of deals since the third quarter of 2009, the 5% increase in dollars marked the first time in four years that dollars invested rose between the fourth and first quarters.

In the Life Sciences sector (biotechnology and medical devices), $1.4 billion was invested in 164 deals, for a 16% increase in dollars and a 9% drop in deals from the fourth quarter. The biotech industry alone received $784 million via 85 deals, which marked a 6% increase in dollars and a 17% drop in deals as compared to the fourth quarter of 2010. In terms of dollars invested, the biotechnology industry placed third among the sectors the NVCA report tracks. However, the number of biotech deals was at its lowest point since the second quarter of 2003. Of the seventeen sectors analyzed for the report, the NVCA noted that seven experienced double-digit increases in dollars invested in the first quarter.

Noting that fourteen companies received funding rounds of $50 million or more, which marked the largest number of such deals since the third quarter of 2001, Tracy Lefteroff, the global managing partner of the venture capital practice at PriceWaterhouseCoopers US, stated that "[t]his is a clear indicator that VCs are seeing innovative companies walk through their doors and that the entrepreneurial spirit of America is alive and well and thriving." Stating that "[w]hat we are not seeing this quarter is just as critical as what we are seeing," NVCA president Mark Heesen pointed out that venture capital dollars were not flooding any particular sectors, and perhaps more importantly, that there was no "mass exodus from sectors, such as life sciences, where significant challenges lie." Instead, Mr. Heesen explained that "[w]hat this deliberate and prudent pace of investment lacks in hype, it makes up for in sustainability, and we are very encouraged for the coming year."

In a MoneyTree Report for 2010 issued earlier this year, the NVCA noted that $21.8 billion was invested in 3,277 deals in 2010, which constituted a 19% increase in dollars and a 12% increase in deals over 2009. The rise in venture funding was the first increase since 2007. The biotechnology industry, however, only saw modest gains in 2010, with dollars up 3% to $3.7 billion and deals up 8% to 460. The biotech industry received the second highest level of funding in 2010, behind the software industry's $4.0 billion and 835 deals.